Bells Banking Co. v. Jackson Centre, Inc.

• Decision Date: 26 August 1996
• Parties: BELLS BANKING COMPANY, Plaintiff/Appellee. v. JACKSON CENTRE, INC., Defendant/Appellant. JACKSON CENTRE, INC., Defendant/Third-Party Plaintiff v. MODELINK CORPORATION, Robert E. Roark and Bill Eady, Third-Party Defendants.
• Court: Tennessee Court of Appeals

Page 421

938 S.W.2d 421

BELLS BANKING COMPANY, Plaintiff/Appellee. v. JACKSON CENTRE, INC., Defendant/Appellant.

JACKSON CENTRE, INC., Defendant/Third-Party Plaintiff v. MODELINK CORPORATION, Robert E. Roark and Bill Eady,

Third-Party Defendants.

Court of Appeals of Tennessee Western Section, at Jackson.

Aug. 26, 1996.

Application for Permission to Appeal

Denied by Supreme Court

Jan. 6, 1997.

Thomas F. Taylor, Waldrop and Hall, P.A., Jackson, for Defendant/Third-Party Plaintiff/Appellant.

S. Jasper Taylor, Bells, for Plaintiff/Appellee.

FARMER, Judge.

This case comes before us for a determination of whether the trial court correctly adjudged the appellant, Jackson Centre, Inc. ("Jackson Centre" or "Corporation"), liable to the appellee, Bells Banking Company ("Bells Banking" or "Bank"), under a corporate guaranty agreement, executed by the then president and C.E.O. of the Corporation, Robert Roark. The agreement guarantees payment to the Bank of a line of credit (up to the principal amount of $120,000) extended to Modelink Corporation (Modelink), whose president was a Mr. B.G. Eady. A loan to Modelink in the principal amount of $80,175.38 is evidenced by a promissory note signed by Mr. Eady on behalf of Modelink, dated October 12, 1989. The guaranty also bears this date.

This lawsuit was initiated by Bells Banking against Jackson Centre on November 21, 1990 after Modelink defaulted on the note. It was alleged, inter alia, that Mr. Roark had the authority to bind the Corporation, as its president. Jackson Centre answered, denying any authority by Roark to enter into the guaranty on its behalf and asserting that Roark "knowingly acted outside the scope of his authority in executing any documents [obligating the Corporation] to [the Bank] in any way...." Jackson Centre pursued a third party complaint against Modelink and Roark ¹ for reimbursement and contribution in the event it was adjudged liable to Bells Banking.

After a bench trial, the following findings of fact were made:

[Jackson Centre] was formed in 1988 for the purpose of purchasing, refurbishing, developing, leasing and managing real estate in downtown Jackson, Tennessee. [Roark] served as the President, Chief Executive Officer and, Chairman of the Board Of Directors of the corporation from its inception until 1990. The directors were Clark Shaw, Robert E. Roark, Lloyd Privett, Jean Smith and Gary Deaton.

In 1989 Lloyd Privett came to [Bells Banking] and introduced [Roark], as the President and Chief Executive Officer of [Jackson Centre], to Ben Mehr, the Chief Executive Officer of the [Bank]. Lloyd Privett informed Mehr of the purpose of the corporation and that they would like to obtain financing from the bank to accomplish their goal.

In October 1989, [Bells Banking] was approached by [Eady] President of [Modelink] and [Roark], who informed the bank that [Modelink] had been awarded a contract by [Jackson Centre] to provide engineering and architectural services to [Jackson Centre] and in turn [Modelink] would be paid the sum of $120,000.00 for the services and [Roark] produced letters between the two to evidence the contract. Roark and Eady requested the [Bank] to provide financing for [Modelink] to perform under the contract until payments were made by [Jackson Centre] to [Modelink] under the contract. The [Bank] required security for the loan and [Roark] agreed to sign a guaranty agreement on behalf of [Jackson Centre] guaranteeing payment of the indebtedness. [Roark] signed the guaranty agreement on October 12, 1989 and the loan was made to [Modelink].

[Jackson Centre] in the period of January 1989 through October 1989 entered into other financing arrangements solely upon the signature of [Roark], as President. On January 3, 1989, [Jackson Centre] executed a Deed of Trust ... to secure an indebtedness of $160,000.00. [In] January, 1989, [Jackson Centre] executed a Deed of Trust in favor of Union Planters National Bank to secure an indebtedness of $50,000.00. On March 16, 1989 [Jackson Centre] executed a Deed of Trust ... to secure an indebtedness of $37,500.00. In June of the same year a Deed of Trust was made ... to secure an indebtedness of $84,000.00. In October of 1989, [Jackson Centre] executed a modification agreement modifying the Union Planters Deed of Trust. All of these documents were signed by [Roark] as President of [Jackson Centre].

In December, 1989, the [Bank] was contacted by Jean Smith, Secretary/Treasurer of [Jackson Centre] concerning the details of [the] guaranty.

In January, 1990, [Roark's] duties were limited and he could no longer negotiate financing on behalf of [Jackson Centre].

The [Bank] notified [Jackson Centre] in January, 1990, that the interest payments were in arrears and that if they were not caught up, then collection procedures would be initiated against them. The interest was paid.

....

Several months later, when interest again became past due, Ben Mehr, again, contacted [Jackson Centre] and at that time the corporation's board requested a meeting with the [Bank].

The meeting was held in July 1990 at the [Bank]. Directors of [Jackson Centre] present were: Clark Shaw, Gary Deaton, Jean Smith and Lloyd Privett. The directors requested that the [Bank] pursue collection from [Modelink] first but, did not give the [Bank] any reason to believe that the guarant[y] agreement would not be honored.

[Modelink] has defaulted on the note executed on October 12, 1989....

Based upon the foregoing, the trial court concluded that Roark had the authority to bind Jackson Centre by signing the guaranty and that the Corporation failed to repudiate Roark's actions prior to the Bank's filing suit. ² A judgment in favor of the Bank was entered accordingly. ³

Jackson Centre appeals to this Court presenting the following issues for our review:

1. Was there implied authority for Mr. Roark to enter [Jackson Centre] into an agreement with [Bells Banking] to guarantee Modelink's debt?

2. Was there apparent authority for Mr. Roark to enter [Jackson Centre] into an agreement with [Bells Banking] to guarantee Modelink's debt?

3. Did the Board of Directors of [Jackson Centre] ratify the guarantee agreement between Mr. Roark and [Bells Banking]?

We review this case in accord with Rule 13(d) T.R.A.P. which provides for a de novo review upon the record, accompanied by a presumption of correctness of the trial court's findings of fact, unless a preponderance of the evidence is otherwise. See, e.g., Town of Bruceton v. Arnold, 818 S.W.2d 347, 349 (Tenn.App.1991). The trial court's conclusions of law are also subject to de novo review on appeal but without any presumption of correctness. See Presley v. Bennett, 860 S.W.2d 857, 859 (Tenn.1993).

We consider first the issues relating to Roark's authority to bind Jackson Centre to the agreement in question. As stated in 3 C.J.S. Agency § 410 (1973), "[a] principal is bound neither by contracts made by a person not his agent, nor by those of his agent beyond the scope of his actual and apparent authority, which he has not ratified and is not estopped to deny." See also Bagley & Co. v. Union-Buffalo Mills Co., 9 Tenn.App. 63, 67-68 (1928). Implied authority has been defined as:

[A]ctual authority given implicitly by the principal to his agent; ... it is actual authority circumstantially proved, or evidenced by conduct, or inferred from a course of dealing between the alleged principal and the agent. It differs from apparent authority in that it is authority which the principal intended that the agent should have.

....

.... Implied powers ... must be bottomed on some act or acquiescence of the principal, express or implied.

... their existence or nonexistence in any particular instance being always determinable by reference to the intention of the parties.

2A C.J.S. Agency § 153 (1972). Apparent authority is most often defined as:

Such authority as the principal knowingly permits the agent to assume or which he holds the agent out as possessing; such authority as he appears to have by reason of the actual authority which he has; such authority as a reasonably prudent man, using diligence and discretion, in view of the principal's conduct, would naturally suppose the agent to possess.

Rich Printing Co. v. McKellar's Estate, 330 S.W.2d 361, 376 (Tenn.App.1959); see V.L. Nicholson Co. v. Transcon Inv., 595 S.W.2d 474, 483 (Tenn.1980).

It is well settled that apparent authority must be established through the acts of the principal rather than those of the agent. E.g., Franklin Distrib. Co. v. Crush Int'l, 726 S.W.2d 926, 931 (Tenn.App.1986). Such requirement was adopted by our state supreme court in Southern Railway Co. v Pickle, 138 Tenn. 238, 197 S.W. 675 (1917), when stating:

The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent; a principal is responsible for the acts of an agent within his apparent authority only where the principal himself by his acts or conduct has clothed the agent with the appearance of authority, and not where the agent's own conduct has created the apparent authority.

Southern Railway, 197 S.W. at 677; see also Franklin Distrib., 726 S.W.2d at 931.

With the foregoing legal principles in mind, we consider the record before us. As found by the trial court, the proof shows that various lease agreements, deeds of trust and a "Modification and Extension of Trust Deed" agreement were executed by Roark as president of Jackson Centre. However, the record also evidences the Board of Director's prior approval of Roark's actions in these matters: first, in the form of two corporate resolutions, signed by the Board of Directors, allowing "any officer of the Company" to execute any and all agreements necessary to effectuate the Corporation's borrowing of certain funds (these resolutions pertain specifically to two of the trust deeds introduced at trial on which only the signature of Roark...